Arends: What do Europe's economic woes mean for European stocks? Not as much as you might think.

No one wants European equities. No one wants to touch them, no one wants to hear about them. Fund managers on the golf course brag about how few they own. Start a conversation about European stocks at a cookout, and people will look at you and laugh.

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The reasons, of course, are as plain as the hot dogs on the barbecue. Those lazy people over there "work for 10 months of the year and get paid for 14," as one money manager put it to me a while ago. Even when this euro crisis is finally over -- and it's now in its third year -- Europe will be doomed to years of stagnation and decline. The banks are worthless. Greece and Spain are broke. Italy, Portugal and Ireland are not far from it. France has even gone "socialist." Sacre bleu! How long until the guillotine is erected once more before a baying mob in the Place de la Concorde, and the heads of stockholders start bouncing like soccer balls into the Seine?

The continent hasn't been written off like this since 1940 (or maybe not since 1349, the year of the Black Death). Europe is finis. Finito. Pick your language. It's kaput.

You can mark me as skeptical about some of this. But forget that. Let's assume for the sake of argument that this point of view is correct. Investors should nonetheless greet it with a very simple response: "So what?"

It's counterintuitive, but investors' returns have very little to do with the growth of a country's gross domestic product -- and almost nothing to do with the GDP for the next quarter or even next year. Wall Street's obsession with these things is institutional, not rational. It's all a con.

In the half century from 1958 to 2008, whose economy grew faster, Sweden's or Japan's? The answer, as most people would have guessed, is Japan's. According to research firm MSCI Barra, Japan grew 4.5 percent a year on top of inflation over that period, whereas Sweden managed less than 3 percent. But which country's investors made more money? The contest isn't even close. MSCI Barra says Swedish investors in real terms beat the Japanese by an average of three full percentage points a year.

This is no mere fluke. MSCI found no major correlation between GDP growth and stock returns across many other major markets during that time frame. Nor have others: A few years ago, Jay Ritter, a professor of finance at the University of Florida, calculated that over the 20th century the correlation between the two was actually negative.

To most investors, this sounds completely upside down. How can this be?

One reason is that investors usually overpay for stocks in faster-growing economies, just as they overpay for stocks in glamorous "growth" industries. History is emphatic: This is usually a bad move. A stock is just a claim on a company's future dividends. No more, no less. If you pay too much up front, no one can help you.

A second reason is dilution. Booming economies attract a lot more capital. New companies spring up to compete with the old ones. Investors in the old ones do not benefit. Here at home, Facebook hopes to do to Google what Google did to Yahoo. The stockholder in Yahoo does not benefit. Some studies estimate that in fast-growing emerging markets, dilution may cost you about 2 percent a year.

A third reason is that markets and companies are now global anyway. Is LVMH Moet Hennessy Louis Vuitton, the Paris-based luxury-goods company, European or global? What about Royal Dutch Shell? Or Porsche?

For these reasons and more, long-term stock returns aren't tied closely to their host country's GDP returns. Short-term GDP figures are basically moot. Stocks are very long-term assets. Ben Inker, head of asset allocation at Boston fund firm GMO, calculates that as a rule of thumb, only about a quarter of a stock's value is derived from the next 10 years' earnings. The real value lies in all those profits and dividends it will pay in the distant future. Next year's earnings? They're irrelevant. The only reason a sensible investor might care about them is hope that a panic will cause short-termists to dump the stock -- letting smart folk buy more of it, cheaply.

Europe today is not the kind of free-money cheap you saw in, say, the 1930s or the 1970s, but it is cheap. Western Europe overall trades for about 10 times forecast earnings, says FactSet. It sports a dividend yield of nearly 4 percent. Spanish stocks yield nearly 7 percent. Italy trades for two-thirds of book value. By these and other measures, the markets are considerably cheaper than the U.S.'s.

The sweet spot for investors lies in large caps. Many household names, blue-chip companies with global operations, have seen their prices sucked down along with everything else.

In normal circumstances, I'd recommend buying an index fund, such as an exchange-traded fund, to get cheap exposure to a wide range of large caps. The
VGK, -0.86%
owns the biggest 350 companies by market value; the
EZU, -1.07%
excludes the London market and focuses only on the euro-zone countries.

This may still be a reasonable move, but it comes with a drawback: About 17 percent of your money goes into financial stocks. European banks are an unknown, much as U.S. ones were four years ago. Many will need to raise money to repair their balance sheets. Personally, I would avoid them altogether. I don't like betting on unseen cards. I see plenty of appealing blue-chip stocks without having to touch financials.

Those who want to buy individual stocks instead can do so quite easily. Most major European companies have American depositary receipts trading here. Take
TSCDY, -0.18%
for example. Warren Buffett is an investor in this British supermarket chain, though he paid more than current prices for the stock. Tesco is expanding rapidly outside the U.K., from Poland to China; Asia already accounts for nearly a fifth of its revenue. The stock trades at nine times earnings, yielding 5 percent.

Growth outside of the Continent is a theme for a lot of European blue chips.
SNY, -0.38%
the French drug giant, now gets barely a quarter of its sales from Western Europe; emerging markets account for more. Sanofi is diversified across consumer health care products, pharmaceuticals and biotech, and bought U.S.-based Genzyme in 2011. It's another Buffett pick, and again, you're getting it cheaper than he did. It trades at nine times forecast earnings, with a 3.2 percent yield.

Some other pharma companies could also appear on a bargain hunter's list.
GSK, -0.69%
the U.K.-based monolith that makes everything from vaccines to mouthwash, is yielding more than 5 percent.
NVS, -0.97%
headquartered in Basel, Switzerland, has branched out in recent years into generic-drug production and eye care as well as high-margin oncology drugs. It trades at only about 10 times forecast earnings.

In the energy sector, European debt fears, France's left turn and falling oil prices have all taken their toll on stockholders in
TOT, +0.55%
Its ADRs have tumbled, flirting with lows last seen eight years ago. Is that a buying opportunity? At six times forecast earnings, with a 6 percent dividend yield, Total looks pretty cheap.

The list of cheap multinational targets goes on, but the biggest takeaway is this: At a time when most investors in the U.S. are scrabbling to earn any interest, a portfolio of European blue chips, even without any financials, can earn 4 percent or more in dividends.

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